Fully Vested

ZIRPity Do Dah

Episode Summary

We continue our discussion of how Zero Interest Rate Policy impacts macroeconomic factors including real estate, public markets and private investing.

Episode Notes

General

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ZIRP Has Been Eating The World

• ZIRP explains the world

More about ZIRP

• Market Edges Toward Euphoria, Despite Pandemic’s Toll (Matt Phillips for The New York Times)
• How Do Interest Rates Affect the Stock Market? (Mary Hall for Investopedia)
• Zero interest-rate policy (Wikipedia)
• What Explains the Stock Market’s Reaction to Federal Reserve Policy? (Ben S. Bernanke and Kenneth N. Kuttner in a paper published by the U.S. Federal Reserve in March 2004)

ZIRP as possible explanatory variable for some recent trends

If ZIRP results in both the cost of money being low, and sources of risk-free returns in excess of inflation to dry up, then it follows that the later stages of an economic cycle under ZIRP may be characterized by speculative surges in certain markets and assets.

Possible recent events spurred on by ZIRP:

• Dislocation in the housing market. Rents are down but home prices are up significantly. Derek Thompson's March 5, 2021 article for The Atlantic covers it well.
• The recent run-up of Bitcoin may be tied to inflation fears brought on by a combination of ZIRP and making the money printer go BRRRRR. What's arguably a speculative bubble in non-fungible tokens is also somewhat exacerbated by so much risk capital coming off the sidelines.
• The proliferation of (relatively) affordable margin trading for retail investors has likely accelerated the meme stock trend.

This said, much like how no individual severe weather event can be tied to global climate change, few if any of these speculative rushes can be directly attributed to ZIRP. But just like how a warming planet is more likely to generate severe weather events with greater frequency, the froth and churn of markets grows choppier under ZIRP.

About The Co-Hosts

• Jason D. Rowley is a researcher and writer at Golden.com. He volunteers with startup outreach for the open-source community and sends occasional newsletters from Rowley.Report.
• Graham C. Peck is a Venture Partner with Cultivation Capital and additionally helps companies build technology development teams in partnership with Brightgrove and other technology development organizations.